We can expect a boom on the insurance market

2005 will be remembered with the revocation of two licenses, the sizeable increase of incomes and the record-high incomes from Kasko sales

Premium income of Bulgarian insurance companies totaled BGN 918.598 million, an analysis of the market made by the specialized informational website insurance.bg shows. This result marks a rise by 27.12% as against the relevant period of the previous year. Growth fell down by four points at the end of the year compared with its first three quarters. It should be highlighted though that at the end of 2005 most of the companies sold the mandatory MTPL insurance at prices far lower than the forecast (and lower than the reasonable ones as regards the risks they cover). That was also the reason why the forecasts that incomes accrued by the business will reach BGN 960-980 million did not come true. Provided prices of the mandatory motor insurance had been formed in compliance with the risks they covered, the forecasts would have been fulfilled. Moreover, the odds were that the BGN 1 billion psychological limit be crossed. Nevertheless, income earned in 2005 was sizeable and the growth registered – considerable. It is only that we left the records we loked forward to be reached in the next year.

Traditionally, the greatest share of insurance companies’ income is formed by the sale of motor insurance policies (Motor Third Person Liability, ‘Green Card’ and Autokasko) – about two thirds of the total income. Undoubtedly, Autokasko is the best-selling insurance policy, its income constituting nearly 40% of the total income. The mandatory Motor Third Person Liability ranks second and third comes the Fire and Natural Disasters Insurance.

Autokasko registered large increase in incomes as against 2004. In order to reveal the real significance of that increase, we should bear in mind that it has been achieved in the conditions of bitter competition and relatively low tariff rates. The success of the insurance is mainly attributable to the record-high sales of new motorcars over the last 15 years (about 35,000). Meanwhile, n the country were imported 150,000 second-hand cars. The higher price of motor insurances determined the considerable increase of Autokasko income.

Despite many companies used to offer, and continue to offer also, MTPL insurance at prices lower than the reasonable, income from that insurance went up as well due to the higher numbers of policies issued. Another prerequisite for the good results was the measures viewed to expand the scope of the mandatory motor insurance undertaken by the state administration under the pressure of the EU commissioners.

It is still early to make a general judgment of the market regarding the MTPL insurance, but one thing is sure, namely that the number of policies sold has gone up, while the numbers of uninsured motorcars fell down. In case the Government complete successfully all measures undertaken, the rates of insured motorcars in the country will exceed 95% until the middle of the year. We should, however, bear in mind that these rates should be maintained through the years and not to be reached on one occasion with view to meet the requirements regarding Bulgaria’s EU accession.

As far as motorcar insurance is concerned, seven of the general insurance companies offering the mandatory MTPL but not being members of the National Bureau of Bulgarian Motor Insurance (National Bureau ‘Green Card’) are expected to be granted new licenses until the end of the year. This is a serious issue, often overlooked by the insurance supervision in the country that needs careful consideration and sound and timely solution.

There are many issues waiting to be solved by insurers within the next months, mainly stemming from the Insurance Code that came into force on January 1^st. A few sub-normative instruments have been adopted since the beginning of 2006, but there are still many deeds that need to be drawn up, adopted and enforced. Insurance companies shall also work at accelerated rates in order to succeed to level their activities with the new legislative framework. Notwithstanding the changes in the working conditions and the new requirements etc. no shocks or crisis situations are expected.

It is sooner the lack of insurance literacy, shrewdness and resourcefulness observed with the biggest part of the Bulgarians that arouses concern within the insurance sector. The continuous torrential rains that summer and the subsequent state of emergency declared in many regions lead to discussions that the citizens have finally grown to maturity when it comes to insurance of private property. A subsequent survey carried out by INSURANCE.BG showed that there has been only a slight increase in the demand and an insignificant increase in sales of that insurance service. After a period of heavy rains one could see a few people, worried about their property waiting outside the insurance companies’ offices. Though, not everyone that has shown any interest has later bought a policy. Therefore, the number of insured still remains far too low. These facts are proved by the annual figures as well. That situation is hardly likely to change unless the state and the insurance companies engage themselves with the so called ‘Property Insurance’ problem.

For another year in a row DZI – General Insurance was the leader amongst the general insurance companies. The company’s income amount to BGN 186.3 million, accounting for 20.28% market share. As compared with the relevant period of the previous year the company has registered growth of 49.65 %. Company’s success is attributable mainly to higher rates of Autokako sales. Compendsations paid off by the company in the last year totaled BGN 54.7 million, while profits reached BGN 8.85 million. DZI registered 45% rise in assets 34% return of the capital employed. In comparison the latter indicator was in 2004 15%.

Bulstrad ranks second in premium income rates, its income amounting to BGN 139.85 million and its market share being equal to 15.23 %. The company is a leader in the sale of ‘Green Card’ Insurance Policy, Aircraft Insurance, Freight Insurance and General Public Liability.

As compared with the previous year the company has recorded growth of income of 32.74 % and profits adding up to BGN 2.261 million.

By income of BGN 132.737 million and market share of 14.45 % Allianz Bulgaria ranks third. The company’s registered 18.74% growth in income compared with the relevant period of the previous year. Profits of Allianz Bulgaria reached BGN 15 million and rank the company second after Energy Insurance PLC.

MTPL clients of Allianz Bulgaria Insurance and Reinsurance PLC were in 2005 three times as many compared with 2004. Motor insurance accounted for approximately BGN 67 million of the total premium income. In 2005 the company paid off BGN 55 million in compensations under all types of insurances, gross damage quota being 48%.

Except the successful performance of the leaders in the business there are also several other companies that deserve admiration by virtue of their significant growth in income compared with previous periods. These are, as follows ‘Armeetz’ Insurance PLC, ‘Victoria’ Insurance PLC, ‘Euro Ins’ Insurance PLC and Insurance Company ‘Bulgarian Real Estates.

Analysing the situation on the life insurance market one could observe a considerable concentration, i.e. the four leading companies held 62.41% of the market, thus leaving only 15-37.59% to the rest. We should, however pay attention to the fact that the monopoly on the market is slowly breaking and some of the smaller companies have aspired to catch up with the bigger ones. So we expect to observe in the next years more equal companies operating in the conditions of market competition.

At the end of the summer of 2005 in Bulgaria was registered DSK Guarantee. Last year we witnessed the entering of another considerable foreign insurer represented by UNIQA. Other serious investors, such as Generali, have also showed interest in Bulgaria’s insurance market. Generali is expected to enter the Bulgarian market in 2006. HDI and Eureko are also expected to operate more actively on the market. Forecasts envisage that they will either undertake some kind of expansion on the market, or will acquire some of the other small companies.

Except for the good news, the market witnessed also the revocation of the licenses of two companies, namely Hilden (ex Jupiter) and Europa. This is the first time that something similar has happened since the license regime was introduced in 1998.

As a whole, 2005 may be described as more than successful. Although some of the interesting things expected to happen on the market will have to wait until 2006-2007. In 2006 experts expect a serious re-structuring of the market, new investors, overstepping the psychological limit of BGN 1 billion, expanding the scope of the MTPL insurance and determining the exact numbers of registered motorcars in the country and the share of the insured ones. Insurance companies themselves will also face some challenges, such as dealing with the new requirements enforced by the legislation and with the serious Western competition. So, we expect a very interesting year.